When it comes to finance, China likes to do things differently. In Shanghaiâs trading rooms, stock quotes turn green when they fall and red when they rise. Red is the colour of wealth in the Middle Kingdom and, no coincidence, the colour associated with the ruling Communist Party.

Last Tuesday when the Shanghai Stock Exchange fell almost 9%, the screens turned sickly green and investors felt queasy. It was the biggest one-day fall in a decade.

The week started off well. The Shanghai Composite index went above 3000 for the first time. Share trading has become universally popular here. The Communist Party has spent 20 years convincing China of the benefits of capitalism, but for years the stock market underperformed.

Last year, though, Beijing reorganised the ownership of state-controlled shares, which was the boost the market needed; by the end of January, the Shanghai Composite Index had increased 130%.

In the Orient Securities brokerage on Tuesday morning, the mood was good. The trading room on Bao Qing Street is typical of many that have sprung up in China. Cast aside thoughts of slick City of London trading rooms; this is a local affair. The computers are old and most of the investors are even older.

They squint with their noses pressed close to the screens, banging away on keypads, buying and selling penny shares. In between trades, they shell peanuts, drink tea or get on with their knitting. When the market closes for lunch, the investors play cards.

On Tuesday, the market fell, forcing the punters in the Orient trading room to put down their knitting. It might have been expected the overdue correction would happen, but no one anticipated the rest of the world to react so dramatically.

The perplexing thing to the Chinese is why global financial markets were suddenly paying so much attention to Shanghai. Was there concern for China’s economic miracle? It seemed unlikely; the biggest problem facing the Chinese government is bringing economic growth under control, not increasing it.
China’s riches depend on a mixture of cheap labour, good infrastructure and the ability of manufacturers to pollute at will. And that had not changed overnight. The Shanghai index is an immature market, worth just a fraction of the likes of New York, London or Tokyo. It’s also a market largely closed to foreigners. So, was China now plugged into the global financial system in the same way it had become an essential cog in the wheel of the world economy?

By Wednesday, the answer came: apparently not. China was marching to its own tune, as markets elsewhere in Asia continued their decline, Shanghai closed up almost 4%.

The reason for the fall in Chinese shares were largely related to local issues. The previous weekend news that Beijing was to crack down on illegal brokerages made people jumpy. The fears of government intervention to cool the market grew. Rumours that a capital gains tax on share profits was about to be imposed made matters worse. This is what sent the market 8.8% lower. But it improved a day later when the state media made clear there would not be a tax rise.

There is also another lesson from the week’s events. China’s government has been quick to claim credit for the stock market’s earlier success and to push ordinary people to invest. The investors at the Orient trading room have bet their savings on it being true. But if the market falters again, China’s growing band of new capitalists will know who to blame.